Retesting support on the S&PThe Dow ended a touch lower last night, but otherwise US stock indices closed with modest gains. Earlier in the session, all the majors rallied off intermediate support levels which were being tested after last week’s pullback. Overnight, the major indices built on Monday’s gains but then sold off sharply on the European open. Investors were rattled by a statement from Russian President Vladimir Putin concerning the use of nuclear weapons, should Russia be attacked by conventional weapons backed by a nuclear power. This has taken the Dow, S&P, NASDAQ and Russell 2000 back to support once again, indicating that investors remain nervous with the stock price of many corporations trading at rarified levels. Just focusing on the S&P, there’s a band of support which runs down from 5,870 to 5,800. So far, support has held at the top end of this range which is positive news for the bulls. If prices can continue to steady, then there’s a reasonable chance that US stock indices could soon have another attempt to take out the record closes hit at the beginning of last week. But there are also reasons to be cautious. Geopolitical concerns aside, the giant corporations in the ‘Magnificent Seven’ currently account for around a third of the S&P 500 by market capitalisation. That represents a significant overvaluation. This could be tested after tomorrow’s close when NVIDIA, currently the largest corporation in the world by market capitalisation, releases its latest earnings update. If the generative AI chipmaker beats forecasts, and once again issues positive forward guidance, then this could provide a base for another surge in tech stocks. But any slither of disappointment could result in a sharp sell-off as investors rush to cut their long side exposure. Investors are already getting antsy following reports yesterday that NVIDIA’s new Blackwell chip has been overheating. The other concern is elevated bond yields. US Treasuries have rallied sharply since mid-September, following the Fed’s 50 basis point rate cut. Yields jumped again after Trump’s election victory. The key 10-year has pulled back from its highest levels, and is down around 4 basis points this morning on safe-haven bond buying. But it remains elevated, and not far below 4.50% - a level which could, if breached, cause concern for investors, leading to a drop in risk appetite.
